CIR V AMEX PHILIPPINES

GR NO. 152609 June 29, 2005

FACTS: AMEX Phils is the Philipiine branch of AMEX International, Inc. a corporation
duly organized and existing in the United States. It is a servicing unit of AMEX
International, Inc. - Hongkong Branch (Amex-HK) and is engaged primarily to facilitate
the collections of Amex-HK receivables from card members situated in the Philippines
and payment to service establishments in the Philippines. Amex Philippines registered
itself with the Bureau of Internal Revenue (BIR) as a VAT Taxpayer.
On April 13, 1999, AMEX Phils. filed with the BIR a letter-request for the refund
of its 1997 excess input taxes in the amount of P3,751,067.04, which amount was arrived
at after deducting from its total input VAT paid of P3,763,060.43 its applied output VAT
liabilities only for the third and fourth quarters of 1997 amounting to P5,193.66 and
P6,799.43, respectively. AMEX cites as basis therefor, Section 110 (B) of the 1997 Tax
Code which states that:
(B) Excess Output or Input Tax. - If at the end of any taxable quarter
the output tax exceeds the input tax, the excess shall be paid by the VATregistered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters. Any input tax
attributable to the purchase of capital goods or to zero-rated sales by a VATregistered person may at his option be refunded or credited against other
internal revenue taxes, subject to the provisions of Section 112.
The BIR reiterates its Revenue Regulations 7-95, otherwise known as the "Consolidated
VAT Regulations," which would make AMEXs facilitation services subject to VAT.
ISSUE: Whether or not, AMEX Phils is entitled to refund.
HELD: Yes. Section 102 of the Tax Code provides for the VAT on the sale of services and
use or lease of properties. Section 102B particularly provides for the services or
transaction to 0% rate.
RR 7-95, otherwise known as the "Consolidated VAT Regulations," reiterates the
abovequoted provision and further presents as examples only the services performed in
the Philippines by VAT-registered hotels and other service establishments. The condition
remains that these services must be paid in acceptable foreign currency inwardly remitted
and accounted for in accordance with the rules and regulations of the BSP. The term
"other service establishments" is obviously broad enough to cover respondents
facilitation service.
As a general rule, the value-added tax (VAT) system uses the destination principle. Goods
and services are taxed only in the country where they are consumed. Thus, exports are
zero-rated, while imports are taxed. However, our VAT law itself provides for a clear
exception, under which the supply of service shall be zero-rated when the following

requirements are met: (1) the service is performed in the Philippines; (2) the service falls
under any of the categories provided in Section 102(b) of the Tax Code; and (3) it is paid
for in acceptable foreign currency that is accounted for in accordance with the regulations
of the Bangko Sentral ng Pilipinas. Since respondents services meet these requirements,
they are zero-rated.